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Saturday, July 20, 2024 | Back issues
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Pay-to-Play Limits Must Be Fought in DC Circuit

(CN) - Republicans chose the wrong venue to challenge a rule that blocks investment advisers from making pay-to-play political contributions, a federal judge ruled.

The Republican Parties of New York and Tennessee sued the Securities and Exchange Commission just this past August, claiming its "Political Contribution Rule" unconstitutionally prohibits "certain investment advisers and certain of their officers and employees from making contributions to political party committees."

Regulators adopted the rule four years ago after investigations found pay-to-play schemes in the selection of pension-plan investment advisers for several large pension portfolios.

In one case, an investment-management firm won business from the New York Common Retirement Fund by paying kickbacks to advisers of the state's comptroller.

To limit this kind of unethical activity, the SEC rule prohibits investment advisers from working for a government entity if they have made a political contribution to officials of that entity within the last two years.

U.S. District Judge Beryl Howell dismissed the Republican Party's challenge for lack of jurisdiction Tuesday.

Under Investment Company Institute v. Board of Governors of the Federal Reserve System, a 1977 D.C. Circuit decision, the authority to review SEC rules rests solely with the federal court of appeals, he noted.

"The D.C. Circuit has exercised direct-review jurisdiction of agency rules promulgated under the Investment Advisers Act and other statutes containing nearly identical direct appellate review authority - without jurisdictional explanation - in numerous cases since Investment Company Institute," Howell said.

Howell called the precedent compelling litigants to bypasses the District Court both confusing and unexplained, but said he must nevertheless follow it.

Rather than transfer the case to the circuit court, Howell dismissed the action by the agreement of both parties.

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